The lender at the centre of Italy’s banking crisis moved closer to the brink after it warned that it could run out of liquidity in just four months, much sooner than it had previously expected.
Shares in Banca Monte dei Paschi di Siena, Italy’s third biggest bank and the world’s oldest surviving lender, plunged 16.6pc and were then suspended this morning after it spooked investors by forecasting that its net liquidity position, which is presently some €10.6bn (£8.9bn), would turn negative in four months’ time.
On Sunday, the stricken bank told investors it had 11 months before it ran out of liquidity. The sudden deterioration in Monte dei Paschi’s finances is a blow to the lender as it struggles raise €5bn from investors to avoid a state bailout.
The bank is this week racing to complete a debt-for-equity swap and a share sale as part of a complex deal to shore up its finances.
However, appetite to rescue the bank is thought to be low. If Monte dei Paschi cannot drum up enough support from investors, Rome will have to step in and bail it out.
The bank will know by tomorrow at the latest whether its efforts to avoid a rescue by Rome have failed.
Government intervention will impose losses on the thousands of ordinary Italians who have invested in Monte dei Paschi’s shares and bonds, although it is thought that Rome is planning to compensate retail investors hit by a rescue.
The Italian government is already paving the way for a bailout by seeking permission from parliament to borrow €20bn to stabilise the country’s financial system, which is swamped by €360bn of bad loans that are crippling its weaker banks.